Sunday, July 27, 2014

In my previous post I promised that I would dive
more into this.The figures and tables
contain public information, but I must disclose that my colleague and mentor,
Dan McGrath, assisted me in assembling them so they are easy to read in a blog
post.Dan is one of the founders of
Jester Financial (www.jesterfinancial.com).

Let’s take a few moments to review what Medicare is
about.I purposely left out Medicare Advantage
plans because the PPACA (Obamacare) guts the funding.We are also hearing anecdotal reports of
doctors opting out of accepting the plans.

Medicare Part A:This
isthe part that many refer to as the free part or the hospital coverage. It’s only free because you paid into it.The qualifications is the same as Social
Security – 40 quarters. If you don’t
qualify, there’s a cost.This is important
because some unions and municipalities did not participate in Medicare and
Social Security.That’s a topic for
another time.

Medicare Part B – This is what many call the doctor
portion.It is currently $104.90 per
month or $1,258.80 per year, per person.This is the standard rate before surcharges, which are based on income,
are added on.

Medicare Part D - This is the prescription drug portion.According to a reputable site, www.Q1medicare.com, the average monthly
amount per person is $53.26 or $639.12 per year. This coverage is also based on income, but it
adds a few more variables such as your age, gender, and residency.

Supplemental Coverage (Medigap
Plans) - This is the insurance that helps cover
deductibles, co-pays, and other out of pocket expenses Medicare doesn’t cover.It is $181 per month on average for a Plan F
policy, per person or $2,172 per year (source: Weiss Ratings).

So if you add it all up, the total
cost for Medicare coverage per person in 2014 is $4,069.92.
This uses average figures using the national average.If you want a more detailed calculation,
Jester Financial has a free software tool at www.yourretirementcosts.org.

Where it gets scary

Medicare has two problems.No, I’m not going to use the scare tactics
from the pundits and politicians who tell you the system is going broke.I am going to look the issues using data.
First, we all know that health costs is running are inflating rapidly.Take a look at the advices from your
insurance company.It is believed that
healthcare inflation is at least twice as high the average rate of inflation.Second,the premiums for Medicare Parts B & D are also based on income.

So if you look at inflation and
assume a 20 year retirement for a 65 year old person retiring today, this is
what the total costs for Medicare premiums alone might be:

But wait, there’s more

If we go back and look at 47 years worth of data for
Medicare Part B premiums, we will discover that Medicare Part B has been inflating at
approximately 7.856% annually.This data
is from Medicare.

We cannot be that precise with Medicare Part D because the program is newer, but we can
take a look at what the Medicare Board of Trustees is predicting.The board believes, as of 2012, Part D will
inflate by 7.1% for the next 8 years.Well, as I type we are 2 years into that already.

Medigap Plansare sold by private insurers, so we have to see what data the Department of Health and Human Services (HHS)
has.The agency reported that for the
last 20 years these policies have been inflating between 4% to 6%.This is expected to continue, and it could
get worse.

If you are age 65 now and think
you’ll make it to age 85, you should expect to pay at least $182,597 for just Medicare
premiums.

Let’s double the offer

Although I really shouldn’t
joke,Here’s where it gets serious. Since
2007, Medicare has been means testing premiums through it Initial Retirement
Monthly Adjustment Amount (IRMAA) that assesses an added surcharge on top of
the current Part B & D premiums for those that have too much income in
retirement.

Currently, the income
brackets are courtesy of www.Medicare.gov. (Hat Tip to Dan for formatting it for me)

How the IRMAA will impact a
retiree in 2014:

Look what happens ifretirees that happen to earn $1 too much in
retirement (over the base amount).You
may say, eh what’s the big deal?So
someone paid an extra $649.20.Ah, we
forgot about inflation.Look at the numbers
over a 20 year period:

I’m wealthy… who cares?Here’s what the numbers look like at the
highest bracket:

Let’s go for the
special onetime offer available only for the next 100 callers

There are some proposal out there
to increase the means testing, that is get the “rich” to pay more.Who is behind this?The House Ways and Means Committee, President
Obama in his 2014 Fiscal Budget, and the Bi-Partisan Policy Center.If they get their way, this is what 2017
might look like.

Notice something
interesting?For Medicare premiums, two
singles living together can ‘shield’ more income from Medicare than a married
couple.

Who is helping you plan for
this?Are they just helping you plan for
Social Security?If they are just
focusing on Social Security,Medicare is
deducted from there.So if Medicare premiums
continue to rise, how is your financial plan going to handle a possible loss of
Social Security? How are you going to feel when you realize it is all due to
one mandatory cost you never planned for and probably your advisors never
factored in to your plan?

Next post will go into how one can plan for and solve this problem.

Again, a special thank you for Dan McGrath of Jester Financial for helping with some data and chart formatting.

Robert (Rob) Klein is an independent advisor in White Plains. He’s a
leading expert in managing and controlling healthcare expenses in retirement. Rob
helps ensure that individuals receive the Social Security retirement income
they entitled to receive, while hopefully helping them lower their income tax
obligation in retirement.

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